Yield is what attracts most investors to master limited partnerships (MLP). Growth, ironically, is what eventually determines MLP returns, as well as income received.

That’s a distinction many investors either haven’t recognized or have chosen to ignore. Take a look at the How They Rate table column headlined “Total Return 1 Year %”. (You can access How They Rate from the top bar on the MLP Profits web page by clicking on “Portfolios.” That bar also lists our model Conservative, Growth and Aggressive Portfolios.)

A brief scroll through the Portfolios reveals some notable underperformers. Of all the MLPs in the US, however, only half a dozen have lost money over the past 12 months. And all of those have received body blows to their businesses that by rights should have leveled them. In fact, it’s likely if they weren’t in the popular MLP sector–and weren’t included in popular index exchanged-traded funds (ETF) and exchanged-traded notes (ETN)–they would have dropped out of sight by now.

Long-term “sell” recommendation AllianceBernstein Holding LP (NYSE: AB), for example, has lost a little over 5 percent this year. However, this investment firm, which is organized as an MLP solely to dodge taxes, deserves a lot worse after axing its quarterly distribution to 12 cents a share, effective with this month’s payment.

That’s a drop of 82 percent from last year’s payout, more than 60 percent from the August distribution. Worse still, third-quarter net income dropped off a cliff, and the firm experienced net outflows of investment dollars from both institutions and individuals.

The yield for unitholders of AllianceBernstein now is barely 2 percent. That would support a unit price in single digits, but hardly the current mid-20s level. Sell AllianceBernstein Holding LP.

Another money-loser the last 12 months is Constellation Energy Partners LLC (NSYE: CEP). This one actually hasn’t paid a dividend since May 2009. That’s hardly surprising, as the company was extremely over-leveraged when the market for its main product, natural gas, crashed. A rebound in natural gas prices would no doubt be a plus. The distribution could also be restored even if prices remain stable and the MLP cuts enough debt.

The question is why anyone would own this one when there are other producers–such as Linn Energy LLC (NYSE: LINE)–that are actually increasing dividends. Sell Constellation Energy Partners LLC if you still own it.

Icahn Enterprises LP (NYSE: IEP) has actually paid 25 cents a unit every quarter since April 2008, when the dividend was raised from 15 cents. The unit price, however, has dropped by more than half over that time. Third-quarter investment results were generally solid, as were the Federal-Mogul, home fashion and metals units. That was offset partly by weakness in real estate.

The question with Icahn is why anyone would own an MLP with so many moving parts when it yields less than 3 percent. Moreover, if there were a tax placed on carried interest, its entire business plan would be upended. Sell Icahn Enterprises LP.

Sell The Blackstone Group LP (NYSE: BX), too; it’s down about 8 percent this year after gutting its quarterly distribution from 30 cents to just 10 cents a unit. The units have surged back since the summer, as some have reasoned low capital costs would aid the company’s ability to buy assets. But it’s yielding barely 3 percent and will be targeted by any future carried interest legislation. It’s hard to see any real attraction.

That also applies to KKR Financial Holdings LP (NYSE: KFN), despite a somewhat higher yield of about 6.4 percent and far better performance this year. A change in carried interest law looks less likely with a Republican-controlled House of Representatives. But if it should happen, it would be fatal to KKR as it would be to AllianceBernstein and Icahn. Why take the chance when there are so many other MLPs yielding as much or more without that risk? KKR Financial Holdings LP is a sell.

K-Sea Transportation Partners LP (NYSE: KSP) has been a sell recommendation about as long as MLP Profits has been published. And despite the revived interest in tankers and fuel transportation in general–which spurred a jump in the units earlier this month–that remains our advice. There’s no dividend and business conditions are still very choppy. Sell K-Sea Transportation Partners LP if you haven’t yet.

If you want to buy securitized property, buy a real estate investment trust (REIT), not an MLP that would be blown ski-high by a change in tax law. That’s a good reason to keep avoiding NTS Realty Holdings LP (AMEX: NLP), though its business has generally held up well and its dividend payout is conservative. NTS Realty Holdings LP is a sell.

The bottom line with all of these sell-rated MLPs is there’s nothing worth anyone’s interest. Yet their unit prices are still holding up well. That’s a clear sign that many investors–including those who run big institutional money–aren’t discriminating among individual MLPs on the basis of business quality. Rather, they’re taking a ride on a sector that continues to thrash the rest of the market.

That’s actually not a bad strategy, if you’re trading–which is pretty much the case for anyone buying the ETFs or ETNs recommended in the Oct. 29 issue of MLP Profits. It’s not going to get anyone very far, however, who’s investing for income, safety and capital growth.

That’s because over time MLPs that grow their businesses and distributions far outpace those that don’t. Over the past five years, for example, Enterprise Products Partners LP (NYSE: EPD) has returned roughly 18.6 percent a year to investors, despite one of the most volatile markets in memory. That compares nicely to an annual return of just 1.7 percent for the S&P 500. Since 2005 Enterprise has increased its distribution 20 times for a total of 35.5 percent, as management has continued to grow the MLP’s base of high-quality assets.

In contrast, AllianceBernstein has lost investors nearly 9 percent a year over that time, for a total drop of nearly 54 percent. Five years ago, in November 2005, it paid 74 cents a share. This month, it paid just 12 cents, while in the last five years there were eight dividend increases and 11 reductions.

Growth Matters

Clearly, growth matters. In fact, nothing should factor more highly when you make decisions about which MLPs to add to your portfolio and which to shun.

Earnings season is the best possible time to get a read on the health and growth prospects of MLP cash flows and dividends. The past two weeks, we’ve examined results for seven MLPP Portfolio favorites. This week I look at the numbers from six others.

Note that some but not all of these did well enough to justify a higher buy target. Remember, we’ve seen quite a run-up in this sector at a time when investors are as fickle as they’ve ever been. And there are plenty of potential catalysts for short-term declines in MLPs that open up solid buying opportunities for the patient. Investors’ penchant for selling off good MLPs every time they raise capital remains a reliable catalyst for entry points, for example.

That plus strong third-quarter results and another distribution increase have done just that for Conservative Holding Genesis Energy LP (NYSE: GEL), now a buy up to 24. This month, Genesis sold 8-year debt at 7.875 percent and closed an over-subscribed equity offering of 5,175,000 units at $23.58 per.

The equity offer price is the highest the MLP has achieved since late 2007, and it was upsized from an original amount of 4.5 million announced in early November. The private placement of debt, meanwhile, was upsized from $200 to $250 million and locks in financing for the pending acquisition of the Cameron Highway Oil Pipeline.

The capital raise coupled with the announcement of the Cameron Pipeline acquisition in late October has taken down Genesis’ unit price down roughly 10 percent from its high. Ironically, it also boosted the MLP’s ability to grow dividends and therefore its worth.

The pipeline deal involves acquiring Valero Energy’s (NYSE: VLO) 50 percent ownership interest for $330 million. Constructed in 2004, Cameron has capacity to deliver up to 500,000 barrels of crude oil per day from developments in the Gulf of Mexico to major Texas refining markets Port Arthur and Texas City.

Genesis’ partner in the system is none other than Enterprise Products Partners, which will remain the operator. Genesis’ role will simply be collecting distributions, which are expected to ramp up in coming years as the anchor fields are developed. And the asset compliments nicely the MLP’s seven-state network of oil-focused pipeline and terminal facilities.

Genesis boosted its distribution for the 21st consecutive quarter in October, a 3.3 percent lift from the second quarter and up 9.9 percent from year-earlier levels. That was followed shortly by the announcement of strong third-quarter numbers, with available cash before reserves–the best measure of the ability to meet dividend obligations–rising 18.7 percent. That took an already strong distribution coverage ratio to a superior 1.5-to-1.

Management’s ability to add low-risk, cash generating energy infrastructure to the MLP’s asset base is the primary fuel for growth. Existing business, however, saw a 4 percent boost in net operating margin from the second quarter and an 11 percent jump from year-earlier levels. Efficiencies but also rising throughput at oil and carbon dioxide pipelines keyed that performance. And they augur more growth ahead, particularly to customers in industries such as mining and pulp and paper.

Genesis’ yield of 6.5 percent is the highest of our Conservative Holdings. Another year of growth like this one will take the payout well above 7 percent, and the unit price very likely well past current levels as well. A return to mid-2007 levels in the upper 30s–when the MLP paid out barely half of what it does now–is within reason. Buy Genesis Energy LP up to our new target of 24.

Spectra Energy Partners LP (NYSE: SEP) still trades slightly above our buy target of 32. Last month the owner of natural gas pipelines and storage systems increased its distribution to 44 cents per unit, 10 percent higher than the year-earlier payout and the 12th consecutive quarterly boost.

That growth should endure for many years to come, as the MLP continues to benefit from parent Spectra Energy’s (NYSE: SE) ambitious capital spending plans–and the resulting dropdowns of assets. The MLP is also on track to reap additional cash flows from organic additions to existing assets, such as the Gulfstream pipeline serving gas-hungry Florida. Storage project expansion is also on schedule and under budget, according to a management update earlier this month.

Near-term results were slowed somewhat by low natural gas prices. But the MLP’s share of Gulfstream’s cash available for distribution nonetheless ticked up to $14.7 million in the quarter, a 2.2 percent boost from last year’s level. Income from Market Hub Partners also ticked slightly ahead.

Spectra’s 1.32-to-1 distribution coverage in the third quarter is extremely solid. And even if no other big dropdown or acquisition materializes, distribution growth should still be on the order of high single digits over the next 12 months. Nonetheless, at a yield of barely 5 percent, we’d rather wait to buy.

Note that the Federal Energy Regulatory Commission (FERC) has commenced an investigation of rates charged by the Ozark Gas Transmission system, a wholly owned business of Spectra Energy Partners. At this point, management doesn’t expect a material effect on the MLP, not matter the outcome, and FERC has only asked for information thus far. And the worst-case seems to be a lower rate and potential refund, neither of which would threaten dividends or growth.

Bad news, however, could be the catalyst for a dip in Spectra’s price, which would give us another opportunity to buy into this very high quality energy infrastructure MLP. The buy target for Spectra Energy Partners LP remains 32.

Units of DCP Midstream Partners LP (NYSE: DPM) were going stratospheric before the diversified gas and gas liquids infrastructure owner and service provider announced an equity offering of 2.5 million units. The $34.96 per unit offer price is the MLP’s highest level since February 2008. Nonetheless, the unit price gapped down with the announcement and now sits at a more reasonable level under $35 per unit.

The proceeds from the offering will go at least partially to financing DCP’s latest strategic move: the $150 million purchase of a 33 percent interest in the Southeast Texas Joint Venture from general partner (GP) DCP Midstream, which itself is a joint venture between Spectra Energy and ConocoPhillips (NYSE: COP).

Southeast Texas is a fully-integrated midstream gas business, combining 675 miles of natural gas pipelines and three natural gas processing plants with 350 million cubic feet per day of capacity and 9 billion cubic feet of natural gas salt dome storage capacity. The facilities have access to interstate and intrastate markets, with natural gas liquids (NGL) market deliveries direct to ExxonMobil (NYSE: XOM).

The new assets are expected to immediately accretive to DCP’s cash flow. Moreover, most revenue is fee-based, which further reduces the MLP’s exposure to volatile commodity prices through its signature gathering and processing business. Management anticipates 80 percent of margins from the venture are fee-based.

DCP’s third-quarter results were steady despite weak natural gas prices, with gas throughput roughly flat sequentially with the second quarter and down only about 3 percent from last year’s levels. NGLs production is reported up 5 percent for the 12-month period.

Cash flow adjusted for items–a key benchmark for dividend growth and safety–was up 25.5 percent. Distributable cash flow itself, however, was markedly lower, dipping 11.7 percent mainly due to weaker results from the seasonal propane business. That produced distribution coverage of just 0.9-to-1. Yearly coverage was somewhat better at 1.14-to-1, with management anticipating substantial improvement from that going forward thanks to the recent string of acquisitions.

Assuming existing assets continue to run well and conditions in natural gas and NGLs remain stable, we should see more distribution growth in coming months. Management, however, elected to leave the November disbursement at par with the August payout in view of these results and capital expansion plans.

The upshot is DCP is an investment-grade company with assets that are both steady and of high potential. It’s also backed by a very strong parent, adding further financial power, and has meaningfully shifted its portfolio to less risk. That’s enough to merit a lift in buy target to 34 for DCP Midstream Partners LP.

Turning to Growth Holdings, management of Inergy LP (NYSE: NRGY) held its October distribution at the same level as its August payout, breaking a string of 34 consecutive quarterly boosts. That ordinarily might be a sign of trouble, but it was almost certainly due to the takeover of general partner Inergy Holdings, which was completed on Nov. 8.

The merger did trigger an immediate 60 percent dividend increase for unitholders of the absorbed GP and Inergy also faced other one-time costs to close the deal. Looking ahead, however, the absorption of the GP should strongly boost cash flows to the LP, setting distribution growth on a faster path than the 4 to 5 percent annual rate of recent years.

This month, Inergy bought two more propane distribution systems, adding 17,000 new customers in Michigan and New York and immediately boosting distributable cash flow. Last month it completed the purchase of a natural gas storage facility in Texas, giving a big boost to operations in that very steady business.

Inergy operates on a slightly different reporting schedule than most MLP Profits recommendations and will release its fiscal fourth-quarter 2010 results on Nov. 29. At that time, we’ll learn more about its plans for future growth and distributions. Meanwhile, our buy target for Inergy LP remains at 39.

Energy Transfer Partners LP (NYSE: ETP) still trades slightly below our recently raised buy target of 52. And management continues to support strong progress by adding quality assets that will eventually merit the units an even higher recommended entry level.

Third-quarter distributable cash flow continued the improvement of recent quarters, rising 9.8 percent. That wasn’t quite enough to cover the payout of 89.375 cents per unit, as the coverage ratio came in at about 0.98-to-1. The fiscal third quarter, however, is typically a weak one for Energy Transfer because of the seasonality of the retail propane business (24 percent of full-year income). Meanwhile, year-to-date coverage–a better measure of dividend-paying power–was a solid 1.3.

Better, the MLP is on the verge of completing two large capital projects, both of which will begin generating large cash flows in December. Both the Fayetteville Express and Tiger Pipeline systems will be major conduits bringing shale production to markets. Both were completed well ahead of schedule and, in the words of Chief Financial Officer

Martin Salinas, at “significantly less than our original cost estimates and even lower than revised estimates” making them “more accretive than what we had originally though.”

That kind of news is not only bullish for investors in the near-term. It also portends well for Energy Transfer in the longer term as it pursues other growth projects in the Eagle Ford, Haynesville and Marcellus shale areas and elsewhere. The Dos Hermanas project in the Eagle Ford Shale is expected to come online next month, with volume growing rapidly in 2011. The Chisholm Pipeline in the same region will be operational in the second quarter of 2011, with the potential to triple capacity.

The current distribution rate has been stuck at the same level since August 2008. Growth, however, is set to resume over the next 12 months, with management set on an aggressive payout rate with a coverage ratio of 1.05-to-1.

Pipeline volume from the company’s interstate transport and storage operations was up 19 percent in the third quarter from year-earlier levels. That’s a strong sign of strength for the existing assets as well. Buy Energy Transfer Partners LP up to 52.

As of now, Energy Transfer hasn’t stated any plans to buy out its general partner interest, publicly traded Energy Transfer Equity (NYSE: ETE). That may become more of a possibility going forward, given the GP’s hefty cut from the LP’s cash flow. We rate Energy Transfer Partners LP a buy up to 40 in the meantime.

Such a buyout would also be interesting for Energy Transfer Equity’s other major cash generator, the GP interest in Aggressive Holding Regency Energy Partners LP (NSDQ: RGNC). This interest was acquired as part of a complex asset swap that moved Energy Transfer Partners’ 50 percent equity stake in the Mid-Continent Express Pipeline to Energy Transfer Equity, which, in turn, sold it to Regency Energy Partners in exchange for units.

The result was an improved balance sheet for Energy Transfer Partners, another cash flow stream for the GP and a prominent backer and partner for Regency. Regency put its new financial power to work this month, buying back 75.9 percent of its 8.375 percent notes of 2013 for $271.3 million. That was made possible by the earlier issue of $600 million of 8 year notes yielding just 6.875 percent.

Like Energy Transfer Partners, Regency has been rapidly converting itself to an infrastructure-heavy MLP from one that only a year ago was very sensitive to ups and downs in commodity prices. The completion of the Haynesville project was one huge step in that direction. The purchase of the Mid-Continent Express stake was another. The company, however, remains heavy in the more volatile gathering and processing as well, including natural gas liquids. NGLs production was up 23 percent year over year, resulting in a 9 percent boost in margins.

South Texas remains an area of what management calls “excellent news and excellent results.” The South Texas gathering system posted throughput gains of 52 percent, and surging activity in the Eagle Ford Shale region promises bigger numbers down the road.

Elsewhere, total volumes in the Haynesville joint venture were up 107 percent. Contract services posted a 21 percent jump in margins, riding increasing demand for compression services in the Eagle Ford Shale. Capability in this area has been dramatically enhanced by the acquisition of Zephyr Gas Services this year.

Regency’s third-quarter cash flow didn’t cover its distribution, a consequence partly of its aggressive expansion moves. The asset additions, the fact that 80 percent of cash flow is now from fee-based business and rapid growth of target areas, however, are moving toward a dividend increase in what CEO Bryon Kelley calls “the not-too-distant future.”

The yield of about 7 percent is somewhat low to merit a buy-price boost. Regency’s steep reduction in risk, however, does make it a good fit with our Growth Holdings–and we’ll almost certainly boost the target going forward as we see more favorable development. Regency Energy Partners LP remains a buy up to 24.